It's every nation for itself as dollar batters global currencies

Ruth Carson, Saleha Mohsin, Bloomberg News on

Published in Business News

Nations are being forced to go it alone in erecting defenses against the relentless strength of the almighty greenback, with no sign that governments are willing to act in concert.

Fueled by hawkish Federal Reserve policy, U.S. economic strength and investors in search of a haven from market swoons, the greenback is surging relentlessly against counterparts big and small by the most in decades. On Friday, it pushed up to its highest level against the euro in 20 years, and was the strongest against the pound since 1985.

Japan has become the latest major country to step directly into the foreign-exchange fray, joining nations from India to Chile that have been tapping their dollar stockpiles in the fight against the mighty greenback.

While the problems in currency markets right now are in many ways reminiscent of the 1980s, the solutions are unlikely to be. Back then, the world’s economic superpowers agreed to tackle in unison the problem of persistent dollar strength, coming to an agreement in 1985 with the Plaza Accord. This time around, there’s little sign such a pact will be forthcoming as national economic interests diverge and the multi-decade shift toward greater global integration is thrown into reverse.

Coordination along the lines of a fresh Plaza Accord would need to include the U.S. administration and there is “close to 0% probability on the Treasury intervening right now to weaken the dollar,” said Viraj Patel, a strategist at Vanda Research. “There’s tons of literature that shows ‘leaning against the wind’ in FX is a futile exercise when monetary policy is having the opposite effect.”

The action undertaken by Japan on Thursday was very much a solo affair, with an official from the U.S. Treasury confirming that it did not participate and the European Central Bank saying it was not involved with currency market interventions. A spokesperson said the U.S. Treasury understood the move but stopped short of endorsing it.


The depreciation of everything from the euro to the South Korean won is adding fuel to already burgeoning inflation pressures across the world, forcing many policy makers to dig deep into their toolkit.

China, the world’s second-biggest economy, is continuing to mount its own defense against the dollar with stronger-than-expected FX fixings. And central banks around much of the world — with Japan, some exception — are weighing in to boost interest rates as they contend with rising consumer prices and FX depreciation.

The Bloomberg dollar index, which measures the currency against a basket of both emerging- and developed-market counterparts, hit fresh highs this week after the U.S. central bank confirmed its determination to lift borrowing costs in a bid to slay inflation.

That broad-based dollar strength, combined with the market fallout from the latest Bank of Japan decision, evidently proved too much for the Japanese government. Officials in Tokyo had previously only talked about FX market concerns, but amped up their fight Thursday by acting directly to prop up the yen for the first time in decades. That’s even as its central bank bucked the global trend toward monetary policy tightening and held the line on keeping official borrowing costs low.


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